ILLUMINATION
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ILLUMINATION

Basic of Technical Analysis for Cryptocurrency

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  • In short, technical analysis is the art of studying the history of an asset’s price action to predict its future.

The Chart art

Line Chart

Line Chart by TradingView

Bar Chart

Bar Chart by TradingView

Candlestick Chart

Candlestick Chart by TradingView

The time factor

  • Depending on the type of investor you are, you can choose different time frames to conduct technical analysis.

The psychology factor: Trends

  • As you study market movements, you may start finding patterns and prices that keep showing their faces on the chart. A lot of this repetition has to do with market psychology and the crowd’s general feeling about cryptocurrency.

Spotting the Key Levels

  • A support level is a barrier that prevents the prices from going lower. It’s always below the current market price on your chart. Market participants who spot the support generally wait at that level to buy the cryptocurrency.

The support level becomes stronger the more it’s tested. But after strong support is broken, the market sentiment runs a good chance of shifting to bearish and starting to drop lower toward the next support levels.

Resistance Levels

  • Resistance is a barrier that prevents prices from going higher. It must be above the current price on your chart, and you can use it as a point to sell your crypto assets.
Resistance Levels by TradingView

Trends and channels

  • Trends can be formed based on market psychology. Some trends are very easy to spot. For example, the period between July and December 2017 was a period of an extreme uptrend in Bitcoin and many other cryptocurrencies when the prices just kept going up. Of course, this strong uptrend caught the attention of many people, investors or not, which led to the crypto bubble that came down crashing in 2018. But spotting trends isn’t always as easy.
  • If the trend lines are above the current price, you can also consider them angled resistance levels. If the line is below the current price, you can use it as a support level.

You can use lengthy channels for short-term trading strategies

When the trend is no longer your friend

  • Unfortunately, trends never continue forever. All good things must come to an end. What goes up must come down.

Picking Out Patterns on a Chart

- Bullish reversal patterns
When a bullish reversal formation is confirmed, it normally indicates that the trend of the market price will reverse from a downtrend into an uptrend.
- Bearish reversal patterns
A bearish reversal formation is the exact opposite of a bullish one. With a bearish reversal, the prices normally hit a resistance during an uptrend and can’t go any higher.

Smoothing Charts Out with Moving Averages

  • If you find price charts and all the information they contain too complicated, you’re not alone! Likeminded investors and chartists often turn to tools categorized as moving averages (MAs) to identify those trends more easily.

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